Shopping for a new car: buying vs. renting vs. leasing
Boston — Buy a new car. Trade it in. Buy a new one.
The drama begun by Henry Ford when he introduced his Model T for the masses in 1908 is repeated every few years when Americans come back to auto showrooms to purchase a shiny new car.
Now, of course, the play contains a new scene: Hero Suffers Sticker Shock. And even if people can handle the big price tags, there are several other costs of owning and operating a car that make it an expensive proposition.
As a result, many Americans are asking themselves if buying a new car -- or owning a car at all -- is the best, most economical way to enjoy the benefits of auto transportation. Fuel prices drop
Until recently, the most dramatic increase in the cost of owning a car could be seen on almost every trip to the gas station. Between each visit, it seemed prices were changed -- upward -- again. Now, the world oil glut has helped bring a pleasant reversal of this process, even to the point of dropping gasoline prices an average 2.3 percent last month.
Whether the Organization of Petroleum Exporting Countries can maintain its recently announced unity on oil production levels and send prices back up again will not be apparent for some time, and not before many Americans have made car-buying decisions.
While fuel costs have played a major part in pushing up car ownership costs, manufacturers' expenses, including labor, safety and pollution controls, and energy have also risen. High interest rates haven't helped much, either. Options to buying a car
For those who don't buy a new car, the first alternative is usually a used car. But many people are discovering a couple of other alternatives: leasing, which still gives them full-time use of the vehicle, and renting, which provides a car when it is needed and eliminates the expense of one when it is not.
Lately, a fifth alternative, repairing, has grown. This does not mean tuning up the car and replacing a few parts; it means major overhauls costing $1,000 to rebuilding or replacing an engine, and installing a new transmission, drive train, or brakes. Sometimes, a number of these jobs might be done at once, giving the owner several more years of low insurance premiums and no car payments.
With all the alternatives, how do you decide what's the right one for you? An examination of each may help make up your mind.
Even though fewer Americans are buying new cars these days, the shiny new automobile is still a leading choice for many. Those who decide to go this route , however, face a list of mounting costs that go beyond monthly car payments and gas purchases. Cost of maintaining an auto
It now costs nearly $3,700 a year to own and maintain a new car, 11.4 percent more than a year ago, according to figures compiled by the Avis Rent A Car System Inc. The $3,700 includes several items many people never consider. As shown in the accompanying chart, prepared for the Monitor by Runzheimer & Co. Inc., a Rochester, Wis., management consulting firm, the annual costs also include maintenance, oil, tires, depreciation, and insurance.
Depending on the size of the car, these costs can range from $3,193 to $4,144 . For many families, this puts the car in the same category as food for the greatest annual expenditure. Driving habits affect care costs
Of course, the factors affecting the costs of owning a car will vary depending on how and where you drive. If you live in a rural area, for instance, you might drive more miles but your car will be easier to maintain because of less stop-and-go driving.
One of the biggest costs in the Runzheimer survey is depreciation. Your car loses a big chunk of its value the day you drive it out of the dealer's lot. The size of the chunk depends in part on its demand in the used car market. This factor, and the high cost of insurance in the first and second years, are enough to keep many people away from new cars altogether.
Another major factor is cost. In normal times, a used car is at least 50 percent cheaper than a comparable new car. But as anyone who has priced used cars lately can attest, these are not normal times. The resale prices of well-maintained used cars, particularly more fuel-efficient vehicles, are much closer to their original sale prices.
Thus, the best bargains in the used car market today are the large cars. If you can afford to spend more on gasoline or if you do not do very much driving, perhaps a bigger, more comfortable car is for you. Also, if you do decide to buy a bigger car, you may be pleasantly surprised to learn that a two- or three-year-old vehicle is more fuel-efficient than the ''gas guzzlers'' of a decade ago. Good care gives used cars longer life
Finally, people who replace their cars every three or four years may find that a good, well-maintained used car will last that long, if the new owner also maintains it well. Maintaining an older car can get expensive, so it is probably best to buy from a reputable dealer who gives a written, binding guarantee.
A major drawback to owning a car -- new or used -- is that the vehicle spends a lot of its time doing nothing. It sits in your driveway or the parking lot at work, looking nice and costing you money. For most car owners, this is unavoidable; they need to have the vehicle available at all times. After all, the freedom of being able to jump in the car any time you want and go somewhere -- anywhere -- was one of the reasons Americans began their love afair with the automobile in the first place.
But there are some reasons why it may be more economical to rent a car instead of owning it.
* If you live in a large city with good public transportation, you may want to do without a car completely, then rent when you need it. You might rent on weekends, vacations, or special occasions during the week when a car is needed. A study last year by the Hertz Corporation found that if a 1981 compact car was rented for 50 weekends plus two weeks a year (at budget rates and driven 100 miles a day), the average annual cost would be $3,433. While this is only a couple of hundred dollars less than the cost of owning a similar car, most people choosing this option probably would not rent that many weekends. Consider renting for vacations
* If you buy a large car, such as a roomy station wagon, because you expect to make one long vacation trip every year, you might want to consider buying a smaller car and renting the big car for that trip. Also, many people are flying to the general area they want to visit, then renting a car to take them to the vacation spot.Because the cost of owning a car goes down the more it is driven, renting is not economical for anyone who puts more than 12,000 miles a year on the odometer.If you decide to rent, spend some time shopping around. Car rental companies have been busy lately developing new package deals than can make renting much cheaper than might be expected. And try to get a car with mileage included.
''Leasing is the fastest growing element of automobile use,'' says Sidney R. Rose, administrative secretary of the American Automotive Leasing Association.
Approximately 1.5 million cars are leased every year, a figure growing by about 200,000 annually, he says. In all, there are some 3 million leased cars driving around, Mr. Rose adds. About half of these are leased by private individuals, the other half by companies. Leases can be a tax write-off
Most leases are done for business purposes. Leasing is generally more expensive than owning, so it makes more sense for people or firms that can write off part of the cost on their taxes. ''More people are leasing if they can figure out any way to justify it as a business expense,'' says Robert Fendell, a former regional editor of Automotive News who is now with the New York advertising firm Al Paul Lefton Company.
The Leasing Association figures that a compact car, leased on an open end, no maintenance contract (driver pays for repairs), and driven 15,000 miles a year would cost $5,075 a year, more than $1,300 higher than the cost of owning. Many simply repair cars
''People are willing to go for repairs they wouldn't have gone for a few years ago,'' Mr. Fendell says. ''They will do $1,600 to $1,700 jobs like engine replacement and major transmission jobs.'' Even if the car is in an accident and sustains damage not covered by insurance, he said, many people will pay for repairs ''out of their own pocket,'' rather than try to pay for a new car, he added.
As a result, he notes, the age of the average car on the road today is creeping up. A few years ago, the average age was about four years, but it recently passed the 6 1/2-year mark. ''This means there is a whole generation of cars that has not been sold.''
What does it really cost to own a new car? Mainte- Deprecia- Insurance, nance, Oil, tion & License, Car n1 Fuel n2 Tires Interest n3 Tax n4 Total Subcompact $698 $248 $1,654 $593 $3,193 (four-cyl.) Compact 852 266 1,988 561 3,667 (six-cyl.) Intermediate 927 281 2,098 668 3,794 (six-cyl.) Full-size 1,101 302 2,130 661 4,144 (eight-cyl.)
n1 Cars are representative 1982 models, with standard accessories, automatic transmission, power steering, power disc brakes, air conditioning, AM radio, tinted glass, driven 15,000 miles per year.
n2 Full-service prices for no-lead gasoline as projected on average for 1982.
n3 Assumes trade-in in good condition after four years with 60,000 odometer miles. Financing with 20 percent down payment and a four-year loan at 15 percent interest.
n4 Comprehensive insurance with $100 deductible, collission insurance with $ 250 deductible, $100/300/50 thousand bodily injury and property damage insurance , average costs of registration, title inspection, personal property-type taxes. Source: Runzheimer and Company, Inc.